First Solar CEO Out After Doubling Capacity, Founder Named Chief

Rob Gillette left First Solar Inc. (FSLR)
after almost doubling manufacturing capacity during the two
years he ran the world’s largest maker of thin-film solar
panels.

“Effective immediately, Rob Gillette is no longer serving
as chief executive officer,” the Tempe, Arizona-based company
said yesterday in a statement that gave no reason for the
change. Chairman and founder Mike Ahearn, 54, was named interim
CEO.

With demand and prices for solar panels falling, boosting
First Solar’s production may have been the wrong direction, said
Paul Leming, an analyst at Ticonderoga Securities LLC in New
York. Declining prices also make it unlikely the company will be
seen as a takeover target.

“Rob Gillette made one overwhelmingly bad decision,”
Leming said yesterday in an interview. “He made the decision
early in his tenure to put the company on an aggressive capacity
expansion.”

First Solar’s annual production capacity was 1,228
megawatts at the end of 2009, shortly after Gillette was named
CEO in October. The company expects to have 2,236 megawatts of
capacity at the end of this year, according to a second-quarter
company overview.

Gillette, 50, expected demand for solar panels to continue
to grow, and expanded factory capacity, Leming said. That view
is “blowing up in his and the board’s face right now.”

Biggest Decline Ever

First Solar fell 25 percent to $43.27 in New York
yesterday, the biggest decline since the company’s initial
public offering in November 2006.

Gillette’s departure came as a surprise to analysts. “This
abrupt move might be related to differing views on the long-term
strategic direction for the company, in light of rapidly
changing industry dynamics driven by slower-than-anticipated
demand” and excess capacity, Sanjay Shrestha, an analyst at
Lazard Capital Markets in New York, said in a research note.

First Solar’s thin-film panels compete against products
made from polysilicon, which is rapidly falling in price. The
spot price fell 9.1 percent to $37.40 a kilogram in the week
ended Oct. 24, and has dropped 19 percent since the start of the
month, according to data compiled by Bloomberg New Energy
Finance. That decline is also driving down the price of solar
panels made with polysilicon cells.

Can’t Compete

The falling price of silicon makes First Solar an unlikely
takeover target, said Theodore O’Neill, an analyst at Wunderlich
Securities Inc. in New York. The company’s technology “is
barely competitive with silicon solar cells,” he said in an e-
mail. “They make super cheap, very inefficient solar panels.
Everyone else makes cheap, very efficient solar panels.”

Thin-film panels typically convert less of the energy in
sunlight into electricity than polysilicon ones. First Solar’s
average conversion efficiency was 11.7 percent in the second
quarter. SunPower Corp.’s polysilicon panels are the world’s
most efficient in commercial production, with a conversion rate
of about 22 percent.

Gillette “may just be stepping down because he sees the
writing on the wall in the solar industry and thinks that First
Solar will be unable to compete with crystalline silicon,”
Gordon Johnson, an analyst at Axiom Capital Management Inc. in
New York, said in an interview.

Johnson has had a “sell” recommendation on the stock
since August 2010 and a $35 price target since Sept. 16.

The company’s shares have dropped 71 percent in the past
year.

Third Departure

Gillette is the third high-level First Solar executive to
leave this year. The company’s president of operations Bruce
Sohn stepped down in April and wasn’t replaced. And last month
Jens Meyerhoff, president of its utility systems unit, departed.

The company’s pipeline of projects under development will
be a “strong earnings buffer,” Shrestha said.

“The industry sees First Solar’s project development as
one of the most successful,” said Jenny Chase, solar analyst at
Bloomberg New Energy Finance.

First Solar is developing three projects that use its
panels. It sold all of them after they received $3.1 billion in
backing under the same U.S. Energy Department loan guarantee
program that supported the failed solar panel maker Solyndra
LLC.

Loan Guarantees

Its 290-megawatt Agua Caliente project in Arizona, which it
sold to NRG Energy Inc., received a $967 million guarantee in
August.

The company received two other guarantees Sept. 30, the day
the program ended, for projects in California. Its 230-megawatt
Antelope Valley Solar Ranch 1 project in Los Angeles County
received a $646 million guarantee and was sold to Exelon Corp.
NextEra Inc. and General Electric Co. bought the 550-megawatt
Desert Sunlight project in Riverside County after it received a
$1.46 billion guarantee.

First Solar said Sept. 22 that its 550-megawatt Topaz Solar
Farm in California wouldn’t get a $1.9 billion guarantee that
had been conditionally approved because it couldn’t meet certain
conditions by the Sept. 30 deadline. The company is seeking a
buyer for Topaz.

“It can’t be a very easy business to run in this
environment with the core business losing money and the
challenges it faces in trying to finance these more-than-a-
billion dollar projects without Energy Department guarantees,”
Aaron Chew, an analyst at Maxim Group in New York, said in an
interview. He has had a “hold” recommendation on the stock
since Sept. 12.

First Solar reported net income of $61.1 million, or 70
cents a share, in the second quarter, compared with $159
million, or $1.84 a share, a year earlier.

Ted Meyer, a First Solar spokesman, would not comment on
Gillette’s departure, and said the company would discuss it Nov.
3 when it reports its third-quarter earnings.